First, let’s get yesterday’s “market” farce out of the way. On a day when European stocks plunged 3.0%-3.5% – buffeted by an exploding immigration problem, a major scandal at Volkswagen, a new low for National Bank of Greece stock – enroute to zero; and news that the U.S. will be basing nuclear weapons in Germany, to directly confront Russia, commodity prices plunged; currencies tanked; the Richmond Fed Manufacturing Survey was an unmitigated disaster; and interest rates plunged as the “odds” of a December rate hike (LOL) plunged to a new low – enroute to zero; whilst the “odds” of a U.S. government shutdown – as early as next week — spiked to 75%; and “fear gauges” like the VIX and ARMS Index rocketed higher; the PPT spent the entire day supporting the “Dow Jones Propaganda Average” – as the Cartel attacked paper PM prices in the same, blatantly obvious manner as usual (“2:15 AM EST raid for the 515th time in 589 days; a nonsensical waterfall decline at the COMEX open; and the same old “cap of last resort” algorithm when prices attempted to rebound at 12:00 PM EST.
By day’s end, the Dow was down by…drum roll please…the PPT’s “ultimate limit down” of exactly 1.0%; whilst gold was down $8/oz, and silver – amidst exploding physical demand – more than 2%. And how about that? In the ensuing overnight market, following a miserable miss in the Chinese PMI manufacturing report – which “unexpectedly” fell to a six-year low of 47.0, a 2% decline in Chinese stocks was followed by…drum roll please…a surge in U.S. stock futures, in the thinly traded market where essentially all U.S. stock gains have been garnered for the past five years. Nice job, PPT! And nice job, gold Cartel! I.e., the “only differences between today and late 2008.” Well, that and tens of trillions of debt; busted Central bank balance sheets and credibility; 40-year lows in commodities; all-time lows in most currencies; and the worst economic environment of our lifetimes. In other words, in reality, “just like 2008, but much, much worse – and irreversible.”
Of course, as discussed in countless articles since Western governments went “all-in” with 24/7 market manipulation in mid-2011; in what I since deemed their cumulative “point of no return” – said “strategy” accomplished nothing but a few years of financial can-kicking, at the expense of 99% of the world’s population and their unborn progeny. As for Precious Metals, the shocking physical shortages of 2008 have been all but guaranteed to return, perhaps permanently, by the unrelenting, maniacal suppression of “paper PM investments” of all types – from futures; to options; closed-end funds; ETFs; and last but far from least, the mining shares I have been screaming my warnings of for the past four years, after having experienced the industry’s destruction first-hand for nine years of investing and employment misery.
This summer, the “end game” of chronic physical shortage brought on by such machinations started to surface in the silver market. And given record demand, plunging inventories, and collapsing production, it’s only a matter of time before, just as in 2008, gold joins the “shortage party” as well.
Back on August 4th, I noted “mounting evidence of the inevitable Precious Metals shortage”; followed by August 13th’s “silver supply a 1.5 or 2.0 out of 10”; and of course, August 28th’s MUST HEAR interview with Miles Franklin’s President and Co-Founder, Andy Schectman, “physical gold and silver market update.” Yesterday’s “Occam’s Razor and the upcoming, historic physical shortage” responded to irrefutable data validating what I have been practically screaming all along; i.e., global silver production is in fact collapsing NOW, in response to the Cartel orchestrated collapse that has left prices way below the cost of production. And of course, the all-out implosion of mining capital expenditures and cash balances. Which, unless prices rocket higher by year-end, will be followed by massive, company-destroying asset write-downs.
To that end, I thought I’d describe, in simple pictures, a way to demonstrate how dire the mining situation has become. But first, how about an update about the retail silver market from Andy Schectman himself, who I spoke to late last night?
To answer the top question on your mind, Miles Franklin’s business is as strong today as at any time in its history – with the vast majority of demand related to silver. Andy again stated, emphatically so, that he has “never seen anything like this” – as nearly all one and 10 oz products are on lengthy backorder, with physical premiums up to levels not seen since 2009. In a nutshell, American Silver Eagles – currently being allocated by the U.S. Mint due to exploding demand meeting head-on with vanishing supply – are currently backordered 6-8 weeks. In Canada, the Royal Canadian Mint is essentially taking no new orders for Silver Maple Leafs of any kind – including the limited edition “Birds of Prey” series’ we have pounded the table on, which are sold out. Similarly, the Perth Mint’s Funnel Web Spider limited edition coin – which we also pounded the table on last month – is completely sold out; with essentially the only coin we currently have access to in material amounts being the Perth Mint 2016 .9999 fine silver Kangaroos, which just started shipping Monday (including to myself). It won’t be long before these, too, are allocated – so if you’re interested in purchasing one ounce coins, I suggest you give Miles Franklin at call at 800-822-8080, while they’re still available. As for “junk silver” – i.e., the “ultimate fear asset” – good luck finding any. And if you do, you’re likely to pay a physical premium at least 50% above the fraudulent “paper price.”
Now that that’s out of the way, let’s get back to said “simple pictures” of the “future of gold and silver mining” – as depicted by the charts of PM mining stocks. Which clearly, are expected to undergo shareholder-destroying mergers; draconian capital expenditures reductions and mine shutdowns; company-destroying asset write-downs; and in some cases, all-out bankruptcy; in some cases, in the very near-term. Which I concur with 100%, per what I have been actively discussing for the past three years – and particularly this year, starting with February’s “initial mining earnings essentially confirm peak gold.”
Yes, after the Cartel successfully pushed the proverbial “snowball down the hill” over a period of a decade, nearly every gold and silver miner’s decline has accelerated to avalanche status – with daily declines, in many cases, averaging 5%-10%, particularly on days featuring significant Cartel attacks; like yesterday, when a measly 0.7% decline in the gold price translated to a horrific 5.5% decline in the HUI mining index – which yesterday closed at a 13-year low, when gold and silver prices were $300/oz and $6/oz, respectively. Moreover, since said “point of no return” in mid-2011 – since which, PM demand has exploded; inventories vanished; and production stagnated; amidst the most bullish political, economic, and monetary fundamentals imaginable, the HUI is down a whopping 83%.
To that end, here’s the chart of the world’s largest – and most leveraged – gold miner, Barrick Gold. Or as I long ago deemed it, “evil personified,” due to its admitted role in colluding with the government and JP Morgan to suppress prices. Which yesterday, closed at a fresh 26-year low – enroute to zero, if the Cartel isn’t defeated imminently.
Of course, I have noted ad nauseum that the high-cost South African mining industry – which remains the world’s fifth largest gold producer – will be the first to collapse. If yesterday’s all-time low in the South African Rand currency wasn’t enough to convince you, here are the charts of the South African “big three” miners; Anglogold Ashanti, the world’s third largest gold miner…
Goldfields – the world’s ninth largest producer, which two years ago claimed the mining industry required $1,500/oz gold to survive…
And the “odds on bet” to go bankrupt first – possibly by year-end – Harmony Gold Mining…
Of course, South Africa’s high costs are far from the industry’s only problem. In many cases, it’s the arbitrary; “upwardly biased”; and in some cases – putting it mildly – questionable calculation of in-ground “resources.” Which no company characterizes better than the world’s fifth largest producer, Kinross Gold – which a year ago, I discussed as a potential bankruptcy risk. As for today, I’d put it barely below Harmony in the “imminent BK risk” category.
Similarly scary charts can be showed for dozens of major miners – as cumulatively depicted by the GDX ETF…
And as for junior miners, the situation is far direr. Let alone, in the mining exploration sector, where – as I vehemently predicted three years ago – perhaps 90% of all companies have either gone bankrupt, or are “bankrupt-equivalent” corporate zombies. In other words, as ugly as the GDXJ junior mining ETF chart looks, it – as well as the TSX Venture Exchange index where most of them trade – would look far uglier if “survivor bias” hadn’t allowed dozens of bankrupt companies to be mercifully de-listed.
The same goes, of course, for silver miners. However, given that no more than one-third of all silver mining emanates from primary silver mines, there simply aren’t that many to highlight. Of course, the largest public silver miners have similar charts – with well-known names like Coeur D’Alene and Hecla Mining (ironically, the oldest publicly-traded company on the continent) looking like particularly potent bankrupt risks.
That said, given that roughly two-thirds of all silver production emanates as byproduct from other mine types – the vast majority from copper and lead/zinc mines – perhaps the most ominous chart of all is the “world’s largest commodity trader,” Glencore.
Yet another bastardized, overleveraged, Wall Street-created financial Frankenstein – in typical Wall Street fashion, cobbled together near the top of the base metals market three years ago – Glencore “provides liquidity” to the metals sector with heavily leveraged trading of paper futures contracts. And clearly, just like the pathetic “hedge fund” industry I worked in from 1996-98 – which for the most part, doesn’t “hedge” anything – Glencore is massively long contracts of everything from…what do you know…copper, to lead, to zinc; all of which are careening toward multi-decade lows.
Following yesterday’s base metal bloodbath – in which not only Glencore’s stock plunged, but it’s credit default swap risk soared; the odds of Glencore going bankrupt surged dramatically – as well as the odds it will be forced to sell said futures contracts into an – ironically – illiquid market.
This, my friends, is the “future of gold and silver mining.” And, for that matter, miners of all kinds, if Caterpillar’s unprecedented mining equipment sales plunge is any indication. Hey, there’s always the chance that the few that haven’t been already diluted into oblivion will be “saved” by a near-term price surge, translating into significant stock price appreciation. That said, the risks of ZERO stock prices are many multiples higher. And far more importantly, the wildly bullish impact on physical gold and silver; which aside from experiencing record demand and vanishing inventories, will be boosted by collapsing production as well – likely for years to come. And how about that? You can own said metal with none of the risks of mining shares, at prices well below the cost of production!